Turbulence in the Energy Market: What Does it Mean for Solar?

As we usher in 2015, we see a great deal of volatility in the energy sector, both domestically and internationally, both in the fossil fuel market and the renewable energy industry. An interconnected web of economics, politics and technology, it is hard to know what might be over the horizon. One thing is for sure, though– we are in a state of flux, and headed for more change. To paraphrase the great Bette Davis in the classic 1950 film “All About Eve,” “Fasten your seat belts…it’s going to be a bumpy year!”
Low U.S. Oil and Gas Prices Pull Solar Stocks Lower

If you live in the USA, you would have to be living under a rock to not notice the plummeting gas prices. In an article earlier this fall, I discussed why solar stock prices are being wrongly tied to the liquid fuels market, and why they should be decoupled. Plans for large solar thermal generation projects are being shelved because of low photovoltaic (PV) panel prices. The price of natural gas is approaching a two-year low. Internationally, wind-power development continues to be strong, while stalling in the US. The only stable market seems to be coal, which is rarely affected by anything.

What are some of the root causes of the turmoil, and what does it all mean for those of us in the solar industry? Let’s take a look at how we got here and where we might be going.

To begin with, the slowdown in the global economy is causing less demand worldwide. This is very bad for Russia’s economy, but here in the US it certainly is making consumers happy. The other reason that US pump prices are so low, is that US production has doubled recently, due in part with new shale oil drilling and fracking technology.

image: economist.com

As far as natural gas, the warm winter is putting downward pressure on the market with decreased demand for heating. Lower gas prices may mean cheaper peak electricity prices, and that may create less demand for solar in 2015. Particularly hard hit may be the utility-scale solar installations and community solar gardens that are popping up across the country. More relevant to the installation of distributed residential and business-scale generation will be the actions of the new congress and state legislatures, many of which slid farther into the conservative column in the last election.

Where is Solar Headed in 2015?

Some stock analysts are predicting a rally for solar stocks at the beginning of 2015, despite the drag that crude prices have been putting on solar in recent months. The market watching website Seeking Alpha recently ran an article entitled A January Comeback for Solar Stocks that makes a lot of great points. Recent indicators may be showing that solar stocks are finally decoupling from the liquid fuels price crash, and a bounce may be in cards for the new year. The optimistic writer goes as far as to say that “tax-loss related selling is a more likely culprit than plunging oil prices for solar’s losses,” which may very well be the case.

image: seekingalpha.com

However, another big factor in the outlook for solar is not related to oil or gas prices in the United states at all, but rather what is happening in China. First, the Chinese economy in general seems to be losing a little steam. Second, the US government is raising tariffs on Chinese made solar panels. This action comes after Chinese manufacturers have driven several US manufacturers out of the market by dumping solar panels onto the U.S. market, in some cases below the cost of production. It is hard to imagine that these tariffs will not raise panel prices in the US, but China has managed to get around tariff rules in the past. According to the New York Times; “The main beneficiary of the ruling is likely to be Malaysia, a Southeast Asian nation that is already the second-largest exporter of solar panels to the United States, after China and narrowly ahead of Taiwan. Western, Japanese and Korean companies are pouring investment into extensive operations there, seeing it as a stable country with a fairly low cost yet highly skilled labor force, and without China’s persistent trade frictions with the West.”

The Solar industry has been divided on the Chinese tariff. Fledgeling American solar manufacturers have been fighting for their lives in the wake of the flood of cheap Chinese equipment. For those that have survived, it is questionable as to whether or not they can still recover. The tariff may have a positive effect on stock prices of U.S. manufacturers initially, but if equipment costs go up, it’s going to hurt the installers, and slow the market. If state governments and utility companies continue to cut subsidies and rebates or implement user’s fees for grid access, 2015 could get very rough for American solar installation companies.

Still, the Solar Energy Industry Association points out the big gains in 2014, and predicts another record year for 2015. “The U.S. installed 1,354 megawatts (MW) of solar photovoltaics (PV) in the third quarter of 2014 to total 16.1 gigawatts (GW) installed PV capacity, with another 1.4 GW of concentrating solar power (CSP) capacity, enough to power 3.5 million homes. This quarter was the second largest quarter in history for solar growth, and SEIA and GTM Research predict another record-breaking year for 2014, with total installed capacity reaching three times the size of the market just three years ago.”
Global Outlook

While the US Solar industry seems mired in uncertainty, solar continues to move ahead in many other parts of the world. “Global PV end-market demand continues to set new records, restoring investor confidence in the PV industry after several years of overcapacity and declining profits,” said Michael Barker, senior analyst at Solarbuzz. “Having been put on hold over the past six months, due mainly to trade-related uncertainties, record quarterly and annual shipment levels will prove crucial to investors that have been hesitant to commit to new capacity funds.”

Despite the fact that US utilities are preferring to cash in on the availability of cheap Chinese PV, Solar thermal generation is going full-bore in equatorial regions like Chile, South Africa and Morocco. Just this month, Germany announced that it will be loaning $796 million to Morocco for solar thermal development. There are even plans to link the Moroccan plants to Europe’s power grid.

Despite stumbling a bit at the end of 2014, there is still plenty to be optimistic about for the Solar Industry in coming years. The market seems to be approaching a global tipping point, where despite the manipulations of governments and energy companies and banks, Solar energy generation is truly here to stay.